Description
Political Risk Insurance (PRI) is a de-risking tool that helps mitigate risks arising from the adverse actions—or inactions—of governments (e.g., expropriation, currency inconvertibility and transfer restrictions, breach of contract), war, civil unrest, and terrorism. PRI can be provided by multilateral agencies (with a development mandate), or national export credit agencies (ECAs) which typically support investors and lenders from their home country. Private for-profit PRI providers also exist.
Benefits
By helping to avoid potential losses due to political causes, PRI helps provide a more stable environment for investments into developing countries, and, as a result, to unlock better access to finance. It enhances investors’ confidence in markets perceived as riskier, therefore allowing them to concentrate on the commercial aspects of their investments. In certain cases, PRI also reduces the provisioning requirement of lenders, thus improving overall financing terms.
Case Study
MIGA Political Risk Insurance facilitates clean energy projects in Democratic Republic of Congo (DRC)
The Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, is one of the leading providers of Political Risk Insurance. MIGA’s PRI products mitigate the risks associated with investing in emerging markets and developing economies with a focus on fragile and/or conflict-affected states. MIGA PRI supports the World Bank’s goal of poverty reduction and shared prosperity on a livable planet.
In 2022, the Democratic Republic of Congo (DRC) had one of the lowest electrification rates in the world with 15.7% of the population having access to electricity. In 2023, MIGA issued a USD 50.3 million guarantee to CES AC1 Limited of Mauritius, a subsidiary of Congo Energy Solutions Limited (CESL), for its equity investment in Nuru SASU who’s responsible for construction, operation, maintenance, expansion of a 11.7MW of solar-hybrid metro-grid sites and the refinancing of a 1.3MW existing metro-grid. MIGA’s Political Risk Insurance covered risks such as expropriation, transfer restriction and inconvertibility, and war and civil disturbance for up to 15 years. MIGA’s risk exposure was shared with the IDA Private Sector Window (PSW) and the Renewable Energy Catalyst Trust Fund, helping to spread the risk and reduce the cost of the guarantee for the project enterprise.
In the case of this clean energy project, the use of PRI was absolutely critical in easing investors’ concerns around political and economic instability, providing a secure environment for investors and encouraging private sector participation.
Additional Sources